What economic principle describes the effect of a price change on consumer purchasing decisions?

The correct answer focuses on the concept of price elasticity of demand, which specifically measures how the quantity demanded of a good or service responds to a change in its price. This principle is essential for understanding consumer behavior, as it quantifies the sensitivity of consumers to price fluctuations.

When the price of a product changes, price elasticity of demand indicates whether consumers will buy more or less of that product. If a product has high elasticity, a small price increase might lead to a significant drop in the quantity demanded. Conversely, if a product is inelastic, consumers will continue to purchase it even with a price increase. This principle helps explain a wide range of market phenomena, including how businesses set prices and how they may respond to changes in market conditions.

Other concepts mentioned, like consumer theory, supply theory, and market equilibrium, cover different aspects of economic interaction. Consumer theory examines how individuals make decisions based on preferences and constraints, while supply theory considers how producers react to changing prices and costs. Market equilibrium refers to the point where the quantity demanded equals the quantity supplied, but it does not specifically explore the relationship between price changes and consumer purchasing decisions as directly as price elasticity of demand does.